Could Netflix Evolve Into A Premium Cable Channel? Perhaps, CEO Says

Pay TV providers already “know how to deal with HBO and would like to have a competitor to HBO,” Netflix CEO Reed Hastings said today at the Morgan Stanley Technology, Media, and Telecom Conference. So even though he doesn’t expect Netflix to join the pay TV line-up as a premium channel any time soon, “it’s in the natural direction in the long term” and “might be very powerful, especially as we have more original content.” But Hastings won’t give up the company in return for carriage, the way many cable channels have. Also he says that in any distribution arrangement it’s important that “the consumer knows they’re using Netflix and have our application on the TV.” Meanwhile, he says that cable operators have good reason to like having Netflix on broadband — despite their frequent complaint that the video service is a bandwidth hog. “They’re making a fortune,” he says. “Comcast and others are selling a (broadband) service for $40, $50, $60, $70 a month with no content costs.”

Hastings says that Netflix will benefit from having exclusive content, including re-runs of Mad Men, but notes that it wasn’t initially part of the company’s game plan. TV stations and cable networks that buy syndicated shows “won’t share with us. They’re just being good capitalists. So we have to buy more exclusives.” Now he expects to increase his spending on unique content. He notes that HBO spends about 60% of its programming dollars licensing movies from studios, and about 40% on original content. “Maybe we’ll get there.” But he still likes buying re-runs. Indeed, he defended Comcast’s new online video service for its customers, Streampix, which some consider a potential Netflix competitor even though it initially will be filled with older content. “You might say, it’s only re-runs. But look at TBS. It’s a very valuable franchise.”

For now Hastings says that Amazon is likely to become one of his biggest competitors — but he’s not concerned. “Amazon’s strength is that they’re super long term (planners) and keep everyone guessing, especially me.” But while the online retailer will have “some share of the market,” he says that Netflix can fight back by offering a better consumer experience. “We’re not trying to win by being broad. That’s their game. We’re super focused” on particular kinds of content — and having a slick user interface that also helps users locate the kinds of content that they want. “When you combine (on demand) with personalization you get high hours and high satisfaction,” he says. “When you pick up the remote control is the moment of truth. Do you turn on the grid, or do you turn on Netflix?”